Xstrata Outmaneuvered

In one corner is Ivan Glasenberg, trader and dealmaker supreme who heads the Goldman Sachs of commodities trading, a company run by shareholder-managers that already has a stake of 34% in its opponent. In the other corner is Sir John Bond, a genial and upright City grandee of the old school.

So Glencore's (ISE: GLEN.L) merger with Xstrata (ISE: XTA.L) was never the "merger of equals" between two FTSE 100 (UKX) firms that it was billed as. In the mergers and acquisitions ring, one side packs a bigger punch and may not be so committed to the Marquess of Queensbury rules.

Rolled overXstrata's board rolled over and accepted an offer of 2.8 Glencore shares for each Xstrata share along with a package of jobs for the boys. Sir John and Mick Davis, Xstrata's CEO, would be chairman and CEO respectively of the combined group, and there would be a generous retention package for Xstrata management. But Ivan Glasenberg would be deputy CEO and president, and -- together with the other shareholder-traders -- would wield substantial power.

Several Xstrata shareholders objected to the terms, but it took stake building by Qatar Holdings to raise the prospect of a "no" vote at Xstrata's general meeting to force a better offer. It ought to be a source of huge embarrassment to the Xstrata board that its shareholders extracted better terms than it did.

UnconventionalQatar's intervention must have come as a surprise blow to Glasenberg. His response was equally unconventional: to recruit Tony Blair to broker a meeting with Sheikh Hamad, Qatar's prime minister, who is well-known to the former U.K. premier through his role as peace envoy to the Middle East.

Some reports put Blair's fee at $1 million, a real peace dividend. The fee reportedly is being shared equally by Glencore and Xstrata. Purists might question why Xstrata should pay to broker a deal between two of its shareholders.

The upshot was a last minute offer that prompted the postponement of Xstrata's general meeting on Friday. The exchange rate was increased to 3.05 Glencore shares, but Glasenberg would be CEO and Glencore would be able to change unilaterally the deal structure to a takeover requiring just 50% of independent shareholders to approve.

After Xstrata's same-day response, those terms were softened over the weekend to keep Davis as CEO for six months and to drop the unilateral right to change the structure. It's not entirely clear if Davis' six-month tenure is designed to smooth the management changeover or enhance his termination package.

In a cornerXstrata's board has been neatly boxed into a corner. If it rejects these terms, which are better than those it has already recommended, it looks as if it is simply self-serving by insisting on Davis remaining as CEO.

Its argument that changing the CEO is tantamount to a takeover and therefore deserving of a suitable premium only highlights how thinly disguised a takeover the deal always was. Glencore has conceded Davis' six-month stint "in order to provide clarity on the issue of CEO succession." Perhaps he was always expected to go within six months.

Meanwhile, Qatar Holdings has not yet made up its mind on the deal, but any reservations appear to be over management arrangements rather than price, though the increase is only slightly above halfway to the 3.25 shares Qatar said it wanted.

Long-term shareholders in the enlarged Glencore might well insist on complete transparency over what was agreed at Blair's meeting. Barclays (ISE: BARC.L) is currently being investigated by the Serious Fraud Office over whether it adequately disclosed all its dealings with Qatar Holdings during its 2008 fundraising.

CudgelsNow activist investor Knight Vinke has taken up the cudgels and is calling for the Xstrata board to seek competing bids. But, the environment is not conducive to mining megamergers, and Glenstrata looks like a done deal.

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